Wachovia, Citi Merger Talks; Bailout Plan Stalls

123jump.com Staff
26 Sep, 2008
New York City

The U.S. lawmakers struggle to define details and scope of the bailout plan that most citizens view as wasteful and unnecessary. Bank stocks fell after WaMu was seized by the Fed regulators and sold for $1.5 billion to JP Morgan Chase. Wachovia is in negotiation with Citigroup and stock drops 25%.

4:30PM New York, 10:30AM Frankfurt, 6:30AM Sydney[R]– The U.S. lawmakers struggle to define the details of $700 billion plan that many in the nation see as a bailout of the rich at the expense of the poor. Wachovia Bank is in negotiation with Citigroup. WaMu was seized by the Fed regulators as it faced a bank run.[/R]

Global Markets

U.S. lawmakers struggle to iron out details of a huge bailout plan that has divided members of both parties. Republican members are looking for a solution that does not involve government money and association with President Bush who will be out of the office in three months.

The unpopular president’s plan is likely to saddle the U.S. government with $700 billion of debt which is ideologically difficult for the most Republican Party members to accept. The U.S. congressional leaders are looking for ways to limit the scope and size of the bailout plan that does not exceed $250 billion.

U.S. lawmakers are increasingly concerned with the health of the U.S. financial system after 120-year old thrift WaMu faced a bank run that lasted ten days and $16.7 billion of deposits withdrawal before the Fed seizure and sold to JP Morgan Chase for $1.5 billion.

Wachovia Bank is in the early stage of discussion with Citigroup according a report by the New York Times. The U.S. stocks traded sideways as lawmakers debate alternatives to the proposed bailout plan. Morgan Stanley, Wachovia and Goldman Sachs dropped in trading. Research in Motion plunged 25% after it missed earnings forecast and issued a cautious outlook.

JP Morgan raised $10 billion and may raise additional $1.3 billion to pay for the recent purchase of the banking operations of Washington Mutual and will have the second largest branch network. The bank will write down WaMu loan portfolio by $31 billion and shut up to 10% of its branches.

UK benchmark stock index fell 2% after banks and commodities related stocks decline. Weakening domestic economy, tight lending conditions and falling metal prices dragged market indexes lower. The demand for government intervention grew as bankers sought relief in the UK.

Consumer price index in Japan rose at a rate faster than wage gains for the fourth month and rose above 2% for the second month in a row. Food, energy and other daily needs continue to rise. In stock trading, shipping lines and steel companies declined.

Hong Kong stocks fell as credit markets weaken in the U.S. and Europe. Ping An will increase its provision for losses after Fortis drops to another low on liquidity concerns. Beijing Airport net income drops 90% on a rise in operating costs and fewer passenger traffic.

The Benchmark index in India closed lower on weakness in financials and realty stocks. Tata Motors fell 3% after the conglomerate sold 1.3% in Tata Steel. Rupee lost 5.6% in the week and dropped as low as 46.97 before recovering to close today at 46.54 to a dollar.

Australia plans to spend A$4 billion to purchase illiquid mortgage securities and hopes that the move will improve liquidity in the credit markets. Inpex Holdings of Japan picked Darwin for its $20 billion LNG plant after frustration with delays for a location in Western Australia.

North American Markets

Dow Jones Industrial Average increased 121.07 or 1.10% to a close of 11,143.13, S&P 500 Index closed up 4.09 or 0.34% to 1,213.27, and Nasdaq Composite Index decreased 3.23 or 0.15% to close at 2,183.34. In Toronto TSX Composite closed down 420.51 or 3.35% to 12,126.00.

Of the 30 stocks in Dow Jones Industrial Average 19 closed higher and 11 closed lower.

JP Morgan Chase led gainers in Dow Jones Industrial Average with a rise of 11% followed by increases in Bank of America of 6.8%, American Express of 4.45, in Citigroup of 3.8% and in Caterpillar Inc 3.5%.

Alco led decliners in the index with a loss of 5.5% followed by losses in General Motors of 2.7%, in General Electric of 1.7%, in Du Pont of 1.46%, in Merck & Company of 0.8% and in Chevron Corp of 0.77%.

Of the stocks in S&P 500 index, 250 increased, 243 declined and one was unchanged. Of the index stocks, 50 rose more than 3% and 60 fell more than 3%.

JP Morgan Chase led the gainers in the S&P 500 index with a rise of 11% followed by gains in International Game Technology of 10.2%, in Capital One Financial of 9.5%, in Hartford Financial of 9.5%, in Wells Fargo of 9.3% and in Legg Mason of 7.8%.

WaMu Inc led decliners in the S&P 500 index with a plunge of 90.51% followed by losses in Wachovia Corp of 27%, in National City Corp of 25.7%, in Genworth Financial of 23.1%, in CF Industries of 16.7%, in CIT Group of 11.4% and in Massey Energy of 8.7%.

South American Markets Indexes

Brazil led decliners in the region with a fall of 2.02% followed by decrease in Argentina of 0.9%, in Colombia of 0.68%, in Peru of 0.61%, in Chile of 0.53% and in Mexico of 0.20%.

Regional weakness dragged Venezuela down 0.4%.

Europe Markets Review

In London FTSE 100 Index closed lower 108.50 or 2.09% to 5,088.50, in Paris CAC 40 Index decreased 63.43 or 1.50% to close at 4,163.38 and in Frankfurt DAX index lower 109.53 or 1.77% to close at 6,063.50. In Zurich trading SMI decreased 129.97 or 1.87% to close at 6,815.52.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed lower 113.37 or 0.94% to 11,893.16, Hang Seng index in Hong Kong decreased 252.34 or 1.33% closed to 18,682.09. CSI 300 index in China higher 20.12 or 0.91% closed to 2,243.66. ASX 200 index in Australia decreased 22.60 or 0.46% to close 4,904.80. The KL Composite index in Malaysia lower 4.21 or 0.41% closed to 1,020.53.

The Kospi Index in South Korea decreased 25.30 or 1.68% to close at 1,476.33, SET index in Thailand closed lower 2.17 or 0.35% to 618.97 and JSE Index in Indonesia decreased 23.97 or 1.28% to 1,846.09. The Sensex index in India decreased 445.00 or 3.28% closed to 13,102.18.

Commodities, Metals, and Currencies

Crude oil decreased $0.85 to close at $107.17 a barrel for a front month contract, natural gas decreased 26 cent to $7.67 per mBtu and gasoline futures decreased 3.22 cents to close at 266.51 cents per gallon.

Wheat futures closed down 20.25 cents in Chicago trading and closed at $7.16 a bushel. Sugar decreased 0.07 cent to 14.48 cents a pound. Soybean future closed down 19 cents to $11.64 a bushel.

Gold increased $3.80 in New York trading to close at $885.00 per ounce, silver closed up $0.16 cents to $13.26 per ounce and copper for the front month delivery decreased 8.05 cent to $3.05 per pound.

Dollar edged lower against euro to $1.4618 and gained against yen to 106.17.

Yields on 10-year U.S. bonds decreased to 3.85% and increased to 4.37% with 30-year of maturities.